Worldwide Oil Supply Still Not Good

I've been catching up on the oil situation for almost a year now, usually reading five to ten articles a week. It's difficult to get a complete picture of what's happening. Clearly, we're not running out of oil but it's becoming obvious that it's getting harder to keep pace with world demand. Stuart Staniford of The Oil Drum is excellent at putting together graphs that explain much of what's going on; here's his summary on his latest analysis:

The events of 2004-2005 appear to be unprecedented in the history of oil production. The flattening of supply was not demand led - on the contrary demand for oil has remained strong as evidenced by the fact that prices have continued to rise to very high levels throughout the supply plateau.

Nor was it caused by any particular geopolitical (or weather) related outage. I have analyzed this at length, and the basic plateau shape is there even if one assumes various oil disturbances had not occurred (and they are mild compared to past oil shocks in any case).

So, at a minimum, we can say with confidence that there is some kind of unprecedented difficulty in raising global oil production/consumption. The graphs I build each month are meant to track the ongoing story of this period with a view to understanding it as it evolves.

Hurricane Katrina and the war in Iraq have had an effect on oil supply but not an effect of sufficient size to explain everything that's been happening in the last thirty months.

Opec and the oil companies have a built-in conflict-of-interest that can explain why they might paint a rosy picture of future oil production. The less nations spend on alternative energy, the more money oil producers will make. But Opec and the oil companies are also subject to pressure in the other direction; if the world's economy begins to sag because there isn't enough oil production, the profits and investments of oil producers will begin to sag as well.

We don't know yet if there's a fundamental supply problem because fewer and fewer productive fields are being found, or if the nature of the oil business is changing so that much more oil infrastructure is needed to maintain old fields and to develop new fields to supply the world's oil needs. If it's an infrastructure problem, the oil companies may catch up to demand in the next four or five years. Or they may not (over the last twenty years, oil companies have simply learned how to pump oil out of a field faster than was done forty years ago and the new methods may very well be masking a fundamental supply problem). Either way, we have a longterm energy problem and it needs to be addressed. The oil business is not the automotive business; the automotive business can switch to a new production model in a matter of months from intial design to production—the oil business, for many reasons, cannot switch to alternative fuels in a similar time frame. Because of the infrastructure needed, it will take years, possibly decades for the world to switch to alternative fuels in any major sense.

Even if the oil companies catch up to demand in the next five years, it is likely there will be further disruptions in the years that will follow. Even now, it's getting harder, more costly and more energy intensive to produce fossil fuels, and the fossil fuels we're producing and using worldwide are getting dirtier overall despite cleaner fuels like ethanol and natural gas. Given that we also have a global warming problem and a pollution problem, it's time to put the three together and retool.